Uniform Commercial Code (UCC) Search

The Uniform Commercial Code (UCC) is a standardized collection of laws governing commercial transactions in the United States. While the UCC is not federal law, it is a comprehensive set of recommended statutes aimed at helping provide consistency among states. This uniform set of rules is essential to interstate business transactions. The Uniform Law Commission (ULC) was established in 1892 to create these uniform laws. Since then, the UCC has become what many call “the backbone of American commerce.”

As a model code, the UCC has no legal effect in any jurisdiction unless a state legislature has enacted its provisions as a statute. The local variations of the entire UCC, or significant parts of it, have been passed by all 50 state legislatures, the Council of the District of Columbia, the Virgin Islands, and Puerto Rico.

There are several ways to access the UCC. The official UCC, published by the American Law Institute, is available directly from the ULC and other legal publishers. Specific state versions of the UCC are also readily available through their state statutes and legal databases. Judicial interpretations of the UCC can be found in case law databases. Legal textbooks also contain parts of the UCC.

The Uniform Commercial Code uses consecutively numbered articles to address the following transactions:

• Sales (Article 2): This article applies to the sale of goods.
• Leases (Article 2a): This article applies to all transactions that create a lease of goods, regardless of their form.
• Negotiable Instruments (Article 3): This article governs negotiable instruments such as promissory notes, checks, and certificates of deposit (CDs).
• Bank Deposits (Article 4): Article 4 addresses bank liabilities and responsibilities concerning items handled for presentment, payment, or collection purposes.
• Funds Transfers (Article 4a): This UCC article governs electronic funds transfers, including wire transfers.
• Letters of Credit (Article 5): This article outlines rights and obligations in transactions involving letters of credit.
• Bulk Transfers (Article 6): Article 6 covers the sale of bulk assets, particularly when a business is liquidating or transferring a large portion of its assets.
• Bills of Lading, Warehouse Receipts, and Other Documents of Title (Article 7): This article covers documents representing ownership of goods in storage or transit.
• Investment Securities (Article 8): Article 8 applies to transactions involving securities such as stocks, bonds, and other investment instruments. It excludes insurance policies and annuities.
• Secured Transactions (Article 9): UCC Article 9 applies to transactions creating security interests in personal property, agricultural liens, sales of accounts or promissory notes, consignments, and other collateralized transactions.

The UCC doesn’t cover every business-related transaction. For example, real estate, service, and employment contracts fall outside its scope. State property, contract, and labor laws typically cover these activities.

A UCC-1 financing statement is a legal document notifying the public of a lender’s interest in property used as collateral to secure a loan. By filing a UCC-1 financing statement, a creditor can seize the asset if the borrower defaults.

The filing also establishes the priority of creditors in seizing assets if the borrower defaults or declares bankruptcy. For example, if the borrower uses the same asset to secure a second loan, the second lender cannot claim it until the first lender is paid in full. Therefore, UCC-1 financing statements are typically submitted as soon as the loan is issued.

For a UCC-1 financing statement to be valid, it must include the borrower’s exact legal name, the collateral, and the lender’s name. You don’t need to give a detailed description of assets, but some deals may require additional information, like disclaimers or subordination terms.

The most common UCC filings include:

• Financing Statements (UCC-1): The UCC-1 form is used to file the initial security interest. It is valid for five years.
• Amendments (UCC-3): The UCC-3 continues the security interest after it lapses. This amendment can be filed within six months before the five-year expiration date. It can also be used to update or terminate an existing UCC-1 or to assign all or part of the security interest to another party.

Other common UCC filings include:

• Statements of Claim (UCC-5): This form is used to reveal inaccuracies in a UCC filing or to show that it was filed wrongly.
• Searches (UCC-11): This form initiates a search of UCC filings and is typically submitted to the Secretary of State in the jurisdiction where the original financing statement was filed.

There is always a fee involved in filing a UCC document, though these fees often vary by state. For example, the UCC-1 filing fee in New York starts at $20. In California, it starts at $5. The filing fees in Texas, Washington, and Florida start at $25, $30, and $35, respectively.

Two types of UCC filings are used to secure collateral:

• UCC Blanket Liens: Blanket UCC filings cover all company assets. If the borrower defaults, a lender can seize and sell company assets to recover the outstanding loan amount. Blanket UCC-1 filings make business loans more accessible to borrowers who may not have large or valuable assets. They are often used to secure SBA loans, lines of credit, and alternative short-term loans.
• UCC Liens Against Specific Collateral: A Purchase Money Security Interest (PMSI) is a UCC lien on specific collateral and is typically used to finance the purchase of business inventory or equipment. The collateral is usually the item purchased with the loan. Should the borrower default, the PMSI gives the lender first priority in seizing the item.

The type of UCC-1 filing used often depends on factors like the loan type and amount, the lender, or the borrower’s creditworthiness.

The location where a UCC-1 financing statement is filed varies, depending on the borrower's location, the type of loan, and the collateral used to secure the loan. Typically, it is filed in the state or county where the debtor is registered to do business. For individuals, it is usually filed in the state where they reside. A PMSI may be filed in the county where the specific collateral is located.

Lenders use UCC liens as risk mitigation. A UCC-1 financing statement gives the lien holder the power to repossess the asset if a borrower defaults on a loan, and it provides the lender with a clear path to recoup losses by selling the asset. A UCC also helps prevent the transfer of ownership without first satisfying the loan. Buyers typically conduct lien searches before purchasing an asset to ensure it is free and clear. It is generally filed before the borrower takes possession of the collateral to record and protect the security interest.

UCC liens can apply to a wide range of assets, including:

• Real estate
• Heavy machinery
• Commercial instruments
• Inventory
• Receivables
• Investment securities
• Office equipment
• Vehicles
• Letters of credit

After a UCC-1 has been filed, a UCC-3 is used to update, extend, or terminate the original filing. It is typically used to extend the loan period, amend details (such as changing the borrower's name or address), or modify the collateral description to reflect the current state of the loan. As circumstances change, the UCC-3 ensures the lender’s interest is protected and properly recorded.

There are five types of UCC-3 filings used to make changes to an original UCC-1 filing:

UCC filings won’t directly impact a business credit score, as they do not measure a borrower’s ability to repay debts. However, a UCC filing may affect borrowing power down the road. A UCC filing prevents borrowers from using the same assets as collateral to secure multiple loans. It also gives potential lenders insight into how leveraged a business is. For example, a borrower who has used significant company assets to secure financing may have trouble taking on another loan.

A UCC-1 expires five years after the filing date and will automatically lapse unless a UCC-3 continuation is filed before the expiration.

Generally, UCC filings can only be removed once you’ve paid off the loan in full and are no longer obligated to the lender that filed the UCC. To remove the UCC filing, ask the lender to remove it using a UCC-3 termination form and file it with the proper state authority to remove it from the public records. Once removed, it should be reflected in your credit report. If the lender fails to honor your request, you can request the removal through the state authority by filling out any necessary paperwork and furnishing evidence that it is no longer valid.

Searching for UCC filings is relatively straightforward, but your experience may vary by state. UCC filings are publicly accessible online through state databases or third-party public record search services. UCC records management varies by state. So, depending on where the business is registered, it is important to access the right database to conduct your UCC lien search.

Accurate UCC liens cannot be disputed, but options are available to address UCC liens filed incorrectly. For example, a borrower may want to dispute a UCC lien if it contains inaccuracies regarding their debt or assets. To dispute a UCC filing, you must be able to provide evidence challenging the filing’s accuracy. This may include records, documents, or other information supporting the claim. When disputing a UCC lien, it is important to act quickly to avoid any negative impact on your ability to secure business financing in the future.